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Thursday, 6 June 2013

IMF review admits: Greeks, we screwed you with wrong program & false multipliers

The
IMF’s review on its Greek program was released late last night. The
51-pages document on Greece’s fiscal adjustment program 2010-2013 is
more than clear: The IMF screwed Greeks for three consecutive years. The
IMF failed to realize the damage austerity would do. The IMF failed to
predict the real recession. The IMF applied wrong multipliers. The list
in which the IMF officially admits its mistakes and failures in the
case of Greece is long and despicable, if one takes into consideration
the thousands of impoverished Greeks, the 1.3 million unemployed, the
crash of the health care and the social welfare, the practical collapse
of the public administration and inhuman austerity measures like taxing
the verified poor.

Excerpts from IMF review:

There were notable successes during the SBA-supported program (May 2010–March 2012).

However, there were also notable failures.

Confidence
was also badly affected by domestic social and political turmoil and
talk of a Greek exit from the euro by European policy-makers.

A quick recovery in growth appeared optimistic. …Nonetheless, the program assumed a V-shaped recovery from 2012.
The
program avoided a disorderly default and limited euro-wide contagion.
But recession was deeper with exceptionally high unemployment.

Market
confidence was not restored, the banking system lost 30 percent of its
deposits, and the economy encountered a much-deeper-than-expected
recession with exceptionally high unemployment. Public debt remained too
high and eventually had to be restructured, with collateral damage for
bank balance sheets that were also weakened by the recession. C

The IMF report is long and on PDF which makes it kind of difficult to copy paste some sections.Are
you nuts? “Views expressed in this document are those of the staff team
and do not necessarily reflect the view of the Executive Board of the
IMF.”

If your interested in the whole report, click here, or read some excerpts as posted on international media:

The Guardian: IMF admits: we failed to realize the damage austerity would do to Greece

Athens
officials react to report with glee, saying it confirms that the price
extracted for country’s bailout package was too high
In an
assessment of the rescue conducted jointly with the European Central
Bank (ECB) and the European commission, the IMF said it had been forced
to override its normal rules for providing financial assistance in order
to put money into Greece.
Fund officials had severe doubts about
whether Greece’s debt would be sustainable even after the first bailout
was provided in May 2010 and only agreed to the plan because of fears of
global contagion.
While it succeeded in keeping Greece in the eurozone, the report admitted the bailout included notable failures.
“Market
confidence was not restored, the banking system lost 30% of its
deposits and the economy encountered a much deeper than expected
recession with exceptionally high unemployment.”
In Athens,
officials reacted with barely disguised glee to the report, saying it
confirmed that the price exacted for the €110bn (£93bn) emergency
package was too high for a country beset by massive debts, tax evasion
and a large black economy.”

Forbes : IMF on Greece: We Screwed Up But It’s Really the Eurozone’s Fault

For Euro crisis enthusiasts, today’s IMF review
of its Greek program is a real treat. By official standards, the
document is thoroughly honest and clear. The report contains two clear
messages. Message One: We screwed up. (This is widely accepted outside
the IMF but the admission is refreshing all the same.) Message Two:
Dealing with the Eurozone countries was impossible and it’s really
they’re fault.

I’m just surprised
that the IMF does not admit it had no previous experience with
single-currency member states and that internal devaluation could not
work.Poul Thomsen announces additional lowering of wages
Interesting enough on the same day the report was released, the IMF website uploaded an interview with the chief of Greek program Poul Thomsen - the ‘interview’ was conducted by IMF staff ! No a single word is spoken about the IMF failures.

Greece
has made substantial progress in strengthening its fiscal position and
increasing its competitiveness, but it still needs to plough on with
structural reforms to boost growth and generate jobs.

In
this upside down IMF technocrats world, where the plight of one looks
like success for the other, Thomsen considers as success the reduction
of imports – without making a link to real world deflation and
consumers’ behavior. And he also signals further cuts in wages.

Thomsen:
imports have been dramatically reduced, bringing over 10 percentage
points of GDP improvement in the external current account position.
Competitiveness has also improved. There is still a competitiveness gap,
but it’s been substantially reduced.Thomsen:
The big question is indeed, where growth will come from. This will
require flexibility in the economy to be able to reallocate resources
from low-productivity to high-productivity activities, to be able to
hire workers into higher-productivity jobs. Key to achieving this is
structural reforms to enhance productivity as well as reforms to tax and
public administration.

Poul Thomsen seems to
identify the main problem of growth. “There are [closed professions]
restrictions, for example, to become a tourist guide.”IMF: wrong multipliers
But
to be fair, Poul Thomsen openly and officially admitted on Wednesday
evening during a press conference that the IMF applied wrong multipliers
on the Greek Program:

Thomsen:
There are certainly things we could have done differently. We already
had that debate six months ago on these multipliers and that if we
should do it again, we would not use the same multipliers. We use estimated multipliers. (full transcript of Poul Thomsen’s press conference here)

Despite
all these admissions of wrong policies, no revision of the austerity
program is foreseen, no return of the money of those who were deprived
of their last cent .
Does admitting these problems help Greeks? Is
a simple “Sorry” enough? No, it’s not. But so far there is no rumor
around the Greek government would pose any compensation demands in the
name of the Greek citizens.IMF’s 2D vs 3D real world
Somewhere in this influx of papers, reports, reviews and interviews, I read:

“IMF: the common view was that no-one could have predicted the depth and length of the recession.”

I
truly believe that exactly here is the root of the main problem of IMF:
its staff sees only in two dimensions (depth and length), where the
real world one more dimension: the width.We screwed you only THAT much…… not THAT much!